Question: In your view, would it be a good idea to add credit history to Minnesota's anti-discrimination laws, which would prevent or limit the ability of an employer to use credit history as part of a hiring decision?
There is what we recognize in civil society as balance between individual rights and other people's rights — it's always about finding a balance.
In a short answer, I don't think it's a good protection to offer. I think there is a good, legitimate business reason for employers to consider an applicant's credit score. But I'm sympathetic to why people would be concerned, because in the absence of any real education about credit reports and scores, how people experience a credit report is like invisible bees stinging — they just don't know what's going on, they just know bad consequences. I think when you don't understand what goes into your score, it can feel like an unfair system. I get that. But when you understand what goes into your score, it looks fairer — it looks like there may be a business case for consideration of that by employers, landlords and car insurers, etc.
Question: What would be the business reason why an employer would want to know about your credit score?
I don't think one should use a credit score as a litmus test — like 650 and above gets hired, 650 and below does not — that seems silly. I would never encourage the use of a credit score or credit report as a global measure of responsibility — good people can have bad credit. But to the extent that a credit report history of whether you've paid well and on time or not, and met your obligations financially, to the extent that that's a snapshot or one measure of responsibility, then it does have some job implications about how financially responsible you are.
The stronger case is that it's a risk factor for employers these days to understand financial pressures that are on their employees, for two reasons. One is the actual risk of theft or embezzlement, and maybe more important is the risk of identity theft. So as a hiring manager, I want to know if there is some risk factor here that's elevated for the kinds of behaviors around financial pressure. If an employer sees there is a bankruptcy, I think it's very relevant to know if they're going through a Chapter 13 bankruptcy, where they're making distressed payments to the court every month. That's a potential factor in deciding whether to hire that person or not — in the same way as if they have a past crime, or if they have references that don't indicate they left their last job under good circumstances. It's all part of a big picture.
Question: Is there any data to suggest that people with credit problems are more likely to embezzle or commit a crime, or be a risk for an employer?
I don't know if there is any data, offhand. I think it just makes common sense to know that if somebody is being hounded by creditors and is feeling these kind of pressures with collection calls and judgments, and the employer is going to receive garnishments on the wages — that at some point that's at minimum a distraction, and probably puts them at risk for potentially more risky behaviors with the information that they handle.
Certainly every small business thinks about embezzlement — if you have a cashier or someone dealing with cash or receipts or receivables, that's a risk factor. But what's interesting is, it used to be only financial businesses that would make the case — bank tellers would get a screening or a credit score. But now, so many people at an administrative, secretarial or customer service level — they kind of all have access to financial information like credit cards and account numbers and things. So the risk broadens in our information society.
Question: Is it your sense, then, that use of credit history information by Minnesota employers is widespread at all levels, and increasing?
I'm not in a position to know how widespread it is. But my impression is that many employers who previously would not have done it, now are including that as part of their profile of looking at people — in the same way that they would include reference checks, or criminal background checks.
Question: If a job application form asks an applicant to sign a waiver allowing the employer to check their credit, would you advise the job applicant to sign it?
I would advise them to sign it, because otherwise it's just a hassle for the hiring manager to have to chase people. So I wouldn't give the hiring manager any reason not to give me an interview. So yes, I'd recommend signing it. But the practical part is, it costs employers money to get credit checks like that. My impression is, 99 percent of employers would never pull that until after an interview process. So if we get 400 applications, we're not going to pay to pull 400 credit reports. Realistically, a credit score is not going to be pulled or obtained before someone has invested in you with at least an interview.
One of the things we do when people have impaired credit is we coach people on how to talk to an employer proactively. So in the interview they say, honestly, "I want you to know that I'm going to be a great candidate for you. If you pull my credit report you're going to see some of these things, but this is the context for that, and just know it's not going to come up, because I am on top of it." So an employer might have a legitimate concern, but it doesn't have to be like a poison pill or a scarlet letter or something like that. It's something to explain — the same as people with a minor drug charge 10 years ago, or a minor traffic thing, have to be prepared to explain those, because they will likely be discovered.
Question: So if a job applicant can reasonably explain why they got into trouble with credit, an employer is likely to be sympathetic?
I can tell you as someone who hires and has hired several dozen people, we want to know the context. And if an employee proactively brings up something, as a hiring manager it makes you relieved that this is the kind of person who is going to disclose problems, versus hide them.
Question: What about the argument that use of credit information might unfairly penalize certain groups, such as minorities who might be disproportionately targeted for predatory lending?
There are two issues here. One is, the use of credit scoring, which is a set of algorithms and mechanical formulas that assigns points for or against you based on the positives and negatives — that's 1,000 times better than the way things used to be, which was manual underwriting. That basically meant that old white guys, maybe like me, would sit in a room, randomly deciding whether someone was creditworthy or responsible. So this idea of a score, which is fairly transparent and where there is easy education available, that seems much more fair than the old system.
Now, what's also true is, many, many groups feel penalized about this because the circumstances of their lives have led to poor scores and poor scoring. An example of that might be some communities that have had bad experiences with credit card companies — in the absence of financial education, historically some communities have been hit harder than others. But I think the answer isn't to not have standards for credit, but to universally provide the basic credit education to make it an equal thing.
Question: Are you concerned about the possibility that an employer could use a credit score as a pretext to not hire someone, when the real reason might be something, and possibly discriminatory and illegal?
I would hope that people would be able to enforce the Equal Credit Opportunity Act and the fair hiring laws. And that if credit was the reason given, but it was a stand-in for race or gender discrimination or age discrimination, I hope that would be reported to the Department of Human Rights. I hate the idea of thinking that credit could be a stand-in. But I think there are existing laws that can address that potential, while still allowing employers to have legitimate information that does have some relevance or business case.
Question: What about the argument that credit history might be a risk factor, but there could be other stresses in an employee's life — divorce, marital difficulties or mental health concerns — that would generally be off-limits for an employer. Why should an employer be able to know that you're struggling with your credit, but not be able to know that you're fighting with your spouse, or have other issues causing stress?
You ask a great question. Does an employer have a right to know all relevant information a new applicant, or where would you draw the line — on family problems, parenting problems, mental health issues, treatment for alcohol and drug problems, things like that. I think there is what we recognize in civil society as a balance between individual rights and other people's rights — it's always about finding a balance. I think there are important reasons why other things are out of bounds for employers to ask about — to protect against gender discrimination, to protect against disability discrimination. Because those are important things that we recognize need to be protected. I think that that's a different thing than one's public credit history.
Question: What about the person who, for whatever reason, chooses not to use credit, and as a result, they don't have a good credit score — or any credit score? They've been totally responsible, yet when they apply for a job, the fact that they've always bought only what they can afford, and paid in cash, may be held against them. Is that fair?
That's potentially tricky because, for example, in some communities there are cultural reasons why use of credit is discouraged. I think about the Amish, and about some parts of the Somali and Islamic community. And sometimes, individuals have just personal beliefs about not wanting to use credit. So I think that poses a challenge. Should someone be penalized because they opt out of the system? On the other hand, should they be rewarded for opting out of the system? I'm not sure about that.
It's kind of like choosing to not have a driver's license: There is no doubt that having a driver's license and a clean driving record helps me as a job applicant, even if I don't have a job with driving duties. It's kind of a stand-in for responsibility. Having a checking or savings account, being banked somewhere — I'm not sure whether it should count or not. I just know that it's a measure — it's a standard of what mainstream financial America looks for. And I don't think it's a hyper unreasonable one.
Note: The information in this section appeared in the Winter 2011 edition of the Department of Human Rights newsletter, The Rights Stuff. The newsletter includes additional material related to this topic.
On Video from the Department of Human Rights
Your Credit History – What Should Employers Know?
Does a credit score say something about a job applicant's character, or are most people with bad credit in that situation through no fault of their own? This half-hour video includes interviews with Darryl Dahlheimer and Ron Elwood. Available on the department website (http://www.humanrights.state.mn.us/education/video/credit.html) and YouTube (http://www.youtube.com/mnhumanrights#p/u/14/wByhBqnBq44).